By Robert Clark – Legal Research Manager, TRACE International
Those with responsibility for conducting business across international borders immediately understand the significance of transnational anti-bribery enforcement.
The headlines are hard to miss: multinational organisations held accountable for corrupt payments to foreign public officials, subjected to crippling fines or criminal prosecutions and required to undertake extensive remedial measures to guard against further misconduct. With so much on the line, individual enforcement actions are carefully scrutinised for indications of the authorities’ expectations and intentions – particularly by companies in the same market or industry.
This attention to specific enforcement agendas and patterns is essential for any global company – not just to avoid becoming the next one under the spotlight, but to effectively align its compliance programme with the practical aims of the law. Anti-bribery statutes are broad in scope and adaptable by design to the endlessly variable forms in which corruption may appear. Observing their practical implementation can help a company identify typically problematic scenarios – learning from the mistakes of others – and take pre-emptive steps to navigate the dangers they exemplify.
Sometimes, though, it can be useful to step back from the details of specific cases and examine larger-scale trends in global anti-bribery enforcement. Which countries are stepping up their prosecutorial activities? Which industries are coming under investigation most heavily? Are bribe-paying companies pursued differently by the jurisdictions in which they are headquartered compared to the jurisdictions in which the bribes were paid? Where are the bribes coming from and where are they going?
These questions have a certain practical importance: the answers can help inform long-term planning and strategy, while aggregate comparisons can help signal shifts in regulatory focus and priority. But we can also learn something by looking at the context in which these trends have occurred. To do that, we need to think about the specific nature and history of the issue at hand. After all, corruption as such is nothing new and its avoidance is among the most general of ethical obligations. But we are particularly concerned with transnational bribery as a specific form of corruption and a unique object of enforcement. Why is that and what does it mean?
“The most prominent enforcement actions are typically those in which a country exercises its jurisdiction over the entity — usually corporate — that is ultimately responsible for the payment of a bribe in another country”
The three types of enforcement
Although ‘transnational bribery’ could, in principle, refer to any bribery involving persons of different nationalities, the activities that we are concerned with have two additional characteristics: they are directed at public officials and they are aimed at securing a business advantage. For example, the US Foreign Corrupt Practices Act (FCPA) prohibits giving or offering anything of value to ‘any foreign official’ for the purpose of ‘obtaining or retaining business’. More succinctly, we can look to the title of the primary international instrument concerning such laws, the Organisation for Economic Co-operation and Development’s (OECD’s) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
Within this restricted scope, a case may involve many players. The governmental side is usually the more straightforward, with a single official as the recipient of the bribe (however broad the meaning of ‘official’ may be). The business side of the transaction is more complex. While it’s possible for a company to affirmatively pursue bribery of foreign officials as a strategy to expand business opportunities, it is more common these days to find the corrupt activities carried out by rogue subsidiaries, employees, or agents. The actual corrupt activities may be conducted by residents of the official’s own jurisdiction, with the transnational character of the incident resulting solely from the location of the parent company.
While the variety of possible actors invites a range of analyses – one might look, for example, at how the brunt of enforcement falls comparatively on the corporation and on the responsible individuals – a more basic classification focusses on two things: which jurisdiction carries out the enforcement and which side of the corrupt transaction is targeted.
The most prominent enforcement actions are typically those in which a country exercises its jurisdiction over the entity – usually corporate – that is ultimately responsible for the payment of a bribe in another country. This type of enforcement is carried out under the FCPA, the UK Bribery Act and similar laws prohibiting bribery of foreign officials. For present purposes, we can call it ‘Type 1’ enforcement.
At the same time, a bribe-paying entity (or its bribe-paying foreign subsidiary) may find itself subject to the jurisdiction of the country in which the bribe took place, under laws prohibiting bribery of domestic officials. Although such actions – call them ‘Type 2’ enforcements – may receive less worldwide attention than their Type 1 counterparts, they remain a significant component of the global deterrence regime.
Finally, the recipient officials can be held liable by their own governments – civilly, criminally or administratively, depending on the law of the domestic jurisdiction. With these ‘Type 3’ enforcements we appear to have exhausted the schematic possibilities, as domestic officials will generally not be subject to foreign jurisdiction.
Trends of the past year
The above categorisation gives us a helpful way to think about and to track the development of enforcement actions around the world. Focussing only on the first type would fail to capture the full range of activity, while failing to distinguish among types would lead to a blurring of our perception.
To put such distinctions to use, we need concrete information about how the laws are being enforced. To that end, my organisation, TRACE International, maintains a publicly available online database of all known transnational bribery investigations and enforcement actions. From this database – the TRACE Compendium – we can analyse which governments are pursuing such actions, where the bribery in question has taken place, the extent to which different industries are involved and other information relevant to understanding global enforcement trends.
The past year had its share of notable developments, as reflected in TRACE’s annual summary publication, the Global Enforcement Report (GER). The United States saw a drop (unsurprising, given the previous year’s record-setting total) in the number of matters resolved under the FCPA (14 in 2017), but substantially kept pace with the past decade’s average. Agencies across Europe for their part maintained a steady increase in their Type 1 enforcement activity, particularly in the United Kingdom.
Meanwhile, there was a notable expansion in the number of jurisdictions undertaking investigations into foreign bribery of their domestic officials (Types 2 and 3) – increasing from 72 countries in 2016 to 82 in 2017. The newcomers include both well-off European nations (France, Norway, Portugal) and developing states in the Americas (Antigua and Barbuda, the Dominican Republic) and Africa (Malawi, Sierra Leone). Nineteen countries were either investigating or had completed enforcement actions against public officials in 2017 (Type 3).
Situating the trends
These figures carry a straightforward lesson: enforcement against transnational bribery offenses remains a worldwide priority. Can the numbers also help us understand why?
“We neither can nor should ignore the importance of domestic politics, popular pressure and ethical ideals in advancing the global anti-corruption agenda”
Some context would be helpful. When the FCPA was enacted in 1977, Washington was coming to terms with what the Watergate investigation had revealed about the common use of corporate slush funds to buy political influence – both at home and abroad. The legislative debate identified two specific forms of corruption this practice effected: evasion of shareholder accountability and interference with US foreign policy. These concerns help situate two of the new law’s distinctive features: a strict mandate that financial records be accurately maintained and a specific exclusion of run-of-the-mill ‘facilitation payments’ from the scope of the bribery prohibition.
It is commonly observed that the FCPA was rarely invoked in the two decades immediately following its passage, with US agencies concluding an average of only one-and-a-quarter enforcement action per year. The enforcement rate started to pick up in the late 1990s and early 2000s, but by then there had been a dramatic shift in the geopolitical landscape. The end of the Cold War had fundamentally altered the aims of western foreign policy, with free trade assuming a central place among global priorities. The World Trade Organization (WTO) came into operation in 1995, the capstone of a thorough revamping of the post-war framework for international commerce. This movement towards globalisation had also provoked a backlash, memorably dramatised in the protests surrounding the WTO’s Ministerial Conference of 1999 in Seattle.
While all of this was afoot, the OECD was at work drafting its own Anti-Bribery Convention, under which its members and other signatories would be required to enact their own laws prohibiting transnational commercial bribery of foreign officials. Looking at the document’s preamble, we can detect a slight shift in rationale: foreign policy and shareholder rights are no longer the primary concerns, but the ways in which bribery ‘undermines good governance and economic development’ in the recipient’s country and ‘distorts international competitive conditions’ that are central to free trade’s economic justification. These concerns weren’t unique to the OECD, which cited and welcomed parallel actions being taken by the United Nations, the World Bank, the International Monetary Fund, the WTO and other supranational institutions to combat the bribery of public officials.
It was at the end of this period of growing international preoccupation with corruption – culminating in the United Nations’ adoption of its Convention Against Corruption in 2003 – that transnational anti-bribery enforcement came into its own. The very next year saw a worldwide surge in activity, with 13 distinct enforcement events, compared to only two in the previous year. Growth remained exponential for the rest of the decade, eventually settling into steady gains punctuated by occasional spikes (most notably in 2016 with more than 100 enforcement events).
Although the laws being enforced are geographically neutral – indifferent to which borders the bribes are crossing – we can see a certain pattern when we distinguish the enforcement activity by type. As reported in the GER, among the countries that have concluded the most Type 1 enforcement actions since 1977, the top five are the United States, the United Kingdom, the Netherlands, Denmark and Germany. In contrast, the tally of Type 2 and 3 actions is led by Algeria, China, Nigeria, South Korea and – in a tie for fifth place – the United States and Cuba. The remainders of the two lists shows a similar disparity between countries in the ‘developed’ and the ‘developing’ worlds. In short – and as one would expect – the pattern of enforcement can be seen as roughly tracking the global flow of investment capital and development funding.
This analysis – speculative and tentative as it is – suggests a possible interpretation of global enforcement trends as driven by national economic interests. Presented with a new range of trade opportunities near the end of the last century, but also faced with popular outrage at the global trade regime’s perceived harms, the former ‘first world’ countries recognised that those harms needed to be addressed in order to preserve the legitimacy and morality of their economic endeavours. Corruption is understood as the root cause of those harms – and as the biggest impediment to extending the benefits of globalisation to all. The scope of concern is broadened from protecting shareholders and maintaining the balance of power to improving the lot of the global populace through free trade, fairly conducted.
On the other side, developing countries find themselves in competition to attract foreign investment. Given the emergent demand for clean business-practice environments – driven in part, of course, by the increase in Type 1 enforcement – these countries have an incentive to demonstrate a good-faith and successful effort to reduce corrupt practices within their governments (Type 3) and to cooperate in prosecuting the foreign sources of bribes (Type 2).
This perspective does not aim to reduce anti-corruption efforts to a set of bare economic calculations. We neither can nor should ignore the importance of domestic politics, popular pressure and ethical ideals in advancing the global anti-corruption agenda. At the same time, acknowledging the role of self-interest and the historical context in which it expresses itself, can help us stay attuned to the reasons for particular patterns and trends and to adjust our own focus and aims as anti-bribery enforcement continues to evolve.
About The Author:
Robert Clark is the Manager of Legal Research at TRACE, where he oversees a team of lawyers responsible for the production of analytical content. He has served as a staff attorney for the Seventh Circuit Court of Appeals in Chicago and as law clerk to the Hon. Terence T. Evans in Milwaukee. He has also worked as a commercial and appellate lawyer specializing in business-bankruptcy litigation, first with the boutique firm of Friedman Dumas & Springwater LLP in San Francisco, then as a founding partner of Dumas & Clark LLP.